One or more real estate professionals, realtors, may be invited by a home or property owner to evaluate the “value” of their home and quote a likely selling price. In today's environment, the realtor will visit the home and take note of its features and then manually review a multiple listing service (MLS) for comparable homes that have recently sold in the area. This comparative market analysis (CMA) may consider the prices of comparable recently sold homes, on-the-market homes, and homes that were on the market, but weren't sold. Based on personal skills in evaluating a home's value, the realtor will quote the seller a price for selling the home. Many times this quote is a simple number on a piece of paper without any backup material to support the analysis used to generate the selling price. The realtor may also consider the on-the-market homes as competition to selling the owner's home and may adjust the selling price based on the analysis up or down depending upon market conditions. A more sophisticated approach utilizes a manually prepared booklet that may include a limited number of recently sold “comparables” to support a price analysis.
Knowledgeable home owners may also do their own analysis by visiting open houses in their area to compare features, location, and the asking prices. Such home owner evaluations are usually limited in scope and based on personal preferences not on independent assessments and knowledge of the existing market conditions. Even so, a realtor may encounter home owners who prefer to set the price of their home based on their own limited evaluation.
Another method of evaluating a value for a home may include using an average price per square foot for homes that have sold in the owner's neighborhood. This method is fraught with its own set of problems. For example, knowing an average value may be worthless if the range of values used is not known.
There are many other situations that may affect the selling price for a home. For example, the age of the home, whether homes in the area are selling quickly or taking a long time on the market, are interest rates high or low, is the job market good or bad, is the economy such that it is a buyers market, and the like. In addition, competition in the real estate business is increasing, consumers are becoming more involved, and more real estate information is available through Internet services.
The pricing of a home or property is of critical importance since it is a primary concern of all parties, should reflect all factors that affect a valuation of the home or property, and has a direct effect on the length of time the home or property remains on the market. Even though the importance of pricing is recognized, determining a price is hard and may be ambiguous. For example, pricing by a realtor generally requires investigation, judgment of multiple factors, analysis including the use of mathematics, presentation of a price and pricing analysis, and negotiation skills. Also, pricing may be controversial due to conflicting interests, be based on misinformation from inaccurate sources, such as from unreliable Internet sources, friends, and associates, and requires prediction of various market forces that affect pricing. Further, the method of evaluating the value of a home or property and the method of generating a selling price is generally inconsistent among real estate agents, even those from the same real estate firm. Due to these and similar subjective pricing methods, real estate agents, buyers, and sellers are often not confident in the pricing information. As a result, buyers, sellers, and realtors are not happy with a price and may set a price independent of the pricing analysis they are not confident in. By having inaccurate pricing, many homes are priced too high, for example, which usually causes the home to stay a long time on the market or possibly not sell. Inaccurate pricing can also lead to homes priced too low for their actual value which results in lost money to the seller.